How to limit the spillover from an inflation surge to inflation expectations?

Lena Dräger, Michael J. Lamla and Damjan Pfajfar

Journal of Monetary Economics, 2024, vol. 144, issue C

Abstract: Using a randomized control trial on German consumers we show that information about rising inflation increases inflation expectations. This initial increase in expectations can be mitigated by providing forecasts of inflation. Information about (future) inflation affects the whole term structure of inflation expectations, where the effects are smaller for longer-run expectations. This information also causes changes in consumption and savings decisions. In subsequent months—when consumers realize that inflation is much higher than the provided forecasts—they reverse the reliance on information about inflation forecasts and rely again more on their initial priors.

Keywords: Short-run and long-run inflation expectations; Inflation surge; Randomized control trial; Survey experiment (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 E58 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: How to Limit the Spillover from an Inflation Surge to Inflation Expectations? (2023)
Working Paper: How to Limit the Spillover from an Inflation Surge to Inflation Expectations? (2023)
Working Paper: How to limit the spillover from an inflation surge to inflation expectations (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:144:y:2024:i:c:s0304393223001629

DOI: 10.1016/j.jmoneco.2023.12.004

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